A forthcoming social revolution depends on two conditions. One, that the code underpinning blockchain software continues to be hack resistant. Two, that the fiat value of crypto-currencies continues to grow.
Blockchains create trust via a distributed network. If the majority of the network co-operates, there is no need to trust a centralised party. This changes the conflict of interest dynamic.
Currently, every sector in the business world has conflicts of interest. The narrative on the left-wing news is always the same. Bankers are greedy. Oil and gas executive are short-sighted. Tech executives are stalkers. None behave in accord with what the consensus wants. Doing so would impact their wealth.
Now, this balance of power is under threat. A well designed cryptocurrency can align the interests of all stakeholders. It can limit the excess value gained by businesses.
When a cryptocurrency comes to market, it has an Initial-Coin-Offering (ICO). ICO's involve the coin-founders publishing a blue or white-paper. This document outlines the technical specifications of its blockchain. The technical specifications explain how the cryptocurrency is generated and distributed. Because blockchains are immutable, the paper outlines how the coin behaves in the long-term. The rules of engagement are there for everyone to see. If the rules of engagement are favourable, the network will grow. Otherwise, people will leave the network.
Market speculation is launching crypto-tokens into the world like mini-grenades of social good. These “social-good” currencies are attempting to replace money. They want to be the new unit of value for buying and selling goods and services within their networks, with a twist. As well as being a unit of value, crypto-currency's can attach rules of engagement. They define how the network distributes and creates (e.g. crypto-inflation) value.
The open-source nature of the blockchain community has helped developers get creative. They are tweaking blockchains to suit specific use cases, relentlessly. Let's consider three examples.
First, social media. The cryptocurrency, Steem, combines Delegated-Proof-of-Stake (mining/verification) with Proof-of-Brain (peer up-voting mechanism). By design, it rewards tokens to valuable content creators. Bloggers on Steemit.com earn Steem by publishing content. Steem is transferable to USD, via Bitcoin or Ethereum.
Second, dentistry. The cryptocurrency, DentalCoin, aims to disrupt the dentistry sector. It aims to reward dentists on the value they provide to patients. Beyond consultations, the coin wants to reward dentists for everything that helps patients. This includes information published online, calls, training, and so forth. It also wants to reward patients. Patients can receive DentalCoin by providing high-quality, honest reviews of their dentist. In this world, it would be much easier to choose a suitable dentist. Because of network-effects, if patients bought into this vision, dentists would follow. Dentists could receive payment in DentalCoin rather than cash.
Third, teaching. I'm teaching English at the moment. I don't get paid to prepare, but I get paid for every hour I teach. There is a conflict of interest. I get the most value by keeping students happy and free-styling (i.e. not preparing) my lessons. Additionally, the language centre syphons lots of money for it's intermediary services. It provides infrastructure, a long-drawn-out learning roadmap, and fancy marketing brochures. A cryptocurrency could change this. A ‘Teachcoin’ could underlie a student/teacher network. Its mining method could align student and teacher interests. Institutions would no longer be part of the equation. With blockchain and smart contracts, this is possible.
But, for these examples to work, challenges need overcoming. First, cryptocurrencies need to be a store of value. Second, they need to be a medium of exchange. To be a store of value, there is a minimum acceptable level of volatility. This requires at very least widespread adoption and good liquidity. This challenge remains unsolved. To be a medium of exchange, individuals need to be willing to buy into the currency. There are challenges here too. Considering the dentistry example in particular. What is the dentist’s incentive to be paid in DentalCoin? It's difficult to redeem. It could add a lot of work to his daily regime. And, it leaves him at the whim of every client.
Nonetheless, the $741,653,528,460 crypto-currency market is creating networks where the majority rule. The rules are simple for the participants (shareholder/stakeholder) to follow. Add value based on the determined protocol (the network's law), and receive reward. Be a negative contributor, and get penalised. This is revolutionary.
Last week, I saw a picture. It’s titled, “7 ways the blockchain can help the environment”. It features the following ideas for crypto-currency projects:
Energy: Increase efficiency with P2P electrical grids. Improve access to power in areas with poverty or natural disasters.
Environmental Treaties: Track real impact and compliance of environmental treaties. Decrease fraud and manipulation.
Non-Profits: Track where donations are going. Decrease inefficiency and bureaucracy in charities.
Carbon Tax: Calculate tax for produces based on carbon footprint. Create a reputation system for companies based on emissions.
Changing incentives: Align incentives with sustainable practices. Create incentives for people to act in sustainable ways.
Supply chains: Track products from origin to store shelf. Reduce carbon footprint and unsustainable practices
Recycling: Encourage recycling by providing tokenised reward. Track and evaluate efficacy of recycling programs.
To my mind, as society, we would be very foolish not to adopt these networks. This is a new era of economics. Instead of hoarding cash, we’re distributing it onto specific networks that we value. The more value one of us contributes to the network, the more value we gain.
These networks are becoming interoperable. Token exchanges such as binance.com allow speculators and investors to trade cryptocurrencies. Smart-contract networks such as ChainLink, allow blockchains to communicate off-chain. Assuming the interoperability between networks improve, we wouldn’t need any money.
Yet, despite the utopian optimism, my view is that the crypto-market will crash, consolidate and grow again. There are many unanswered questions. Too many crypto-coins with high valuations and poor fundamentals. And, a rapidly developing block-chain infrastructure. Because of this, concepts that improve block-chain infrastructure and functionality are critical. Key themes include interoperability, privacy, governance, mining/verification, liquidity, and regulatory compliance. This could lay the road for some valuable ideas.